For electric scooters to survive, they’ll have to stop steamrolling local governments.

It only lasted a couple years, but the era of the electric scooter as we know it is over.

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Once flush with venture capital cash that encouraged growth at all costs, startups such as Lime, Bird, and Vol have all laid off employees as their scooters lay dormant during the coronavirus crisis. Lyft has also scaled back its scooter business, exiting Austin, Oakland, and San Jose for good. The plan right now is just to survive, at least until the mere act of touching a communal scooter no longer seems life-threatening.

Electric scooters were already in trouble before stay-at-home orders began. The economics of scooter startups never quite squared with their level of Silicon Valley investment, and their sudden invasion of city streets was often at odds with the kind of government partnerships they needed to thrive.

When it comes to shoddy business models, the pandemic has a way of speeding up the inevitable. In the case of electric scooters, it has exposed the limitations of a business that sought to establish itself through venture-fueled imposition, only to find permission (and a viable business model) later. The scooter startups that survive will have to recalibrate, with lower expectations and a much gentler attitude toward the cities in which they operate. Otherwise, they might not stick around at all.

Problems exacerbated

Daniel Hoffer, the managing director for Autotech Ventures, was always skeptical of scooter startups. Autotech has been pitched by roughly 20 “micromobility” companies, but the venture capital firm has passed on all of them.

The problem, Hoffer says, is a lack of “defensibility.” Between Lime, Bird, Lyft, Uber, and others, the riding experience was interchangeable, so the ability to compete was largely a function of having enough cash to fill the streets with scooters. Hoffers says that even ride-sharing businesses such as Lyft and Uber, which have failed to turn a profit, are more defensible since they have to build up an ecosystem of both riders and drivers.

When it comes to shoddy business models, the pandemic has a way of speeding up the inevitable.

“We believe in the overall trend towards micromobility vehicles and applications, but we have yet to see barriers to entry for any one company that is strong enough to warrant an investment,” Hoffer says.

Coronavirus has only exacerbated those problems. Whatever plans scooter startups had to become profitable—cheaper and longer-lasting bikes, perhaps, or new business models such as Lime’s subscription passes—would have to wait. Instead of outspending competitors on growth, they now have to spend as little as possible just to survive. That means laying off more employees, eliminating marketing, scaling back orders for new bikes, and even dropping out of less promising markets.

“In any recession or slowdown, the companies that are able to cut expenses most aggressively and outlast their peers are best-positioned for long-term success,” Hoffer says.

A libertarian streak

Gabe Klein, a partner at the urban consulting firm Cityfi and a former transportation department commissioner for Chicago and Washington, D.C., sees a more fundamental problem for scooter startups: It’s hard for transportation services in general to become wildly profitable.

“Historically, the only companies that have really consistently shown profit are the automakers,” Klein says.

Transportation involves major capital expenses and maintenance costs, and it involves a lot of marketing. Consumers absorb a lot of those costs when they buy a car, but not so much when they hail a taxi or rent out a scooter. Klein says micro-mobility success stories often come through public-private partnerships where each side shares in both the risks and the profits. He points to the long-running Capital Bikeshare in Washington, D.C., and Divvy in Chicago as examples that he was involved with.

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It’s funny how people want to mow over government until times get tough.”

Gabe Klein

But most scooter startups took the opposite approach, fashioning themselves as huge, venture-funded businesses that would reap the spoils of success for themselves. Instead of involving local governments from the start, Lime and Bird would drop scooters into cities on their own and only later make amends for littering sidewalks and causing safety issues. This echoed the strategy of ride-sharing startups such as Uber and Lyft, which used a lack of regulation to gain an edge over taxi services. (Uber, famously, once implemented a program to dodge enforcement by local regulators.)

“There’s been sort of this libertarian element to mobility coming out of Silicon Valley, this idea that we can overpower government with dollars,” Klein says. “We can go direct to consumers, build support, and not really work with the cities that we’re operating in.”

While Klein credits startups like Bird for popularizing the idea of electric scooters in the first place, the gung-ho approach clearly wasn’t making business sense even before coronavirus hit. With startups stripped of the ability to grow at all costs, he expects to see a lot more public-private partnership in the virus’s aftermath.

“It’s funny how people want to mow over government until times get tough,” Klein says. “When times get tough, all of sudden even Steve Mnuchin starts to look like a socialist.”

Unintended consequences

Klein says that some scooter startups were already warming up to local governments before the pandemic. Although Bird initially “came out swinging” against cities, for instance, it’s since become an early member of the Open Mobility Foundation, a group that’s building open-source data sharing tools for cities and transportation companies. He also says Lime has quietly become more constructive behind the scenes with governments.

Unfortunately, those budding relationships may themselves be on the chopping block now. Evan Costagliola, a principal and emerging mobility practice co-lead at the urban transportation consulting firm Nelson Nygaard, says he knows several talented people who’ve lost their jobs working on local partnerships at scooter startups. It’s yet another sign, he says, of them undervaluing partnerships and policy. While those layoffs might seem necessary, they could also have unintended consequences.

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When you get rid of those good people that have built some trust with cities, you’re potentially accelerating your decline.”

Evan Costagliola

“When you get rid of those good people that have built some trust with cities, you’re potentially accelerating your decline,” he says.

The result, Costagliola says, could be even more bargaining power for cities. In the same way that Chicago and Washington, D.C., invested in third-party bike sharing programs, cities might give a hand to cash-strapped scooter startups in exchange for new regulations. They might, for instance, be able to mandate more scooter deployments in low-income areas, special pricing for low-income users, more language support in scooter apps, new safety guidelines, or rules against price gouging.

“One of the potential outcomes is that cities now have a lot more leverage in terms of what they can ask for, because companies are desperate and they do need public dollars,” he says.

In the meantime, Costagliola says to expect the kinds of things we typically see during a recession: Smaller companies might fold, larger ones may merge or look to get acquired, and ones that are just dabbling in the scooter business may question whether that’s still worth doing.

Oddly enough, the one scooter company both he and Cityfi’s Gabe Klein seem most optimistic about is Spin, which has made a point of partnering with cities instead of antagonizing them. (Klein has served as an advisor to the startup.)

In Dayton, Ohio, the local transit authority is assisting with Spin’s operations, and in Pittsburgh, Spin is part of a consortium of companies providing transportation at stations around the city. Spin has also partnered with Swiftmile, a provider of e-scooter docking stations, to install solar-powered chargers in Washington, D.C., and Ann Arbor, Michigan.